Li Auto stock could pop after earnings as a rare pattern forms

Li Auto stock price has remained under pressure in the past few weeks after the company downgraded its delivery data. It was trading at $24, down by over 27% from its highest point this year. The focus now is on the upcoming results and the fact that it has formed a rare bullish pattern.

Li Auto stock price pattern points to more gains

The daily chart shows that the Li Auto stock price has plunged in the past few weeks. It moved from a high of $31.15 in July to the current $24. 

Li Auto’s share price has formed a rare death cross pattern as the 50-day and 200-day moving averages have crossed each other, suggesting more downside in the near term.

On the positive side, the Li Auto stock price has formed an inverse head and shoulders pattern, which often leads to more gain in the long term. The head in this pattern is at $19.2, while the shoulders are between the support at $21 and $22. Its neckline is at $31.

Therefore, a battle is going on between the two patterns, with the outcome expected soon when Li publishes its financial results on Thursday.

The most likely scenario is where the stock rebounds now that sentiment has weakened after the company downgraded its vehicle delivery numbers for the second quarter as competition in the Chinese EV market rises.

The distance between the neckline and the head of this pattern is about 40%. Measuring the same distance from the neckline gives the target price to $43.65, which is up by 82% from the current level. A drop below the lower side of the left shoulder at $21.34 will invalidate the bullish Li Auto stock outlook and point to more downside.

Read more: Here’s why Li Auto stock price could explode higher after earnings

Li Auto earnings ahead 

The main catalyst for the Li Auto stock price is its financial results scheduled on Thursday this week. 

These results will likely show that its business deteriorated in the second quarter, reflecting a delivery downgrade.

Li Auto lowered its Q2 vehicle delivery numbers to 108,000, down from the previous range of between 123,000 and 128,000.

The management attributed the downgrade to a temporary impact of its sales system upgrade. In its most recent delivery report, the company noted that its deliveries stood at 30,730 vehicles, bringing the cumulative total to 1.68 million vehicles.

The sales downgrade means that analysts tracking the company expect its financial results to be modest. The average revenue estimate is that it will be CNY 31.82 billion, largely flat from  what it made in the same period last year.

Li Auto’s earnings per share is expected to come in at CNY  1.73, higher than the previous CNY 1.43.

Its annual revenue is expected to be CNY 160 billion, followed by CNY 205 billion in the next financial year. These numbers mean that Li, which was once a fast-growing company, is losing traction in the EV industry as competition in the industry heats up.

Li is now betting on sales of the Li i8 vehicle, whose sales started earlier this month. It is a six-seater vehicle that is now competing with Tesla’s Model Y, with Li targeting 10,000 orders by the end of the second month.

While analysts at Macquarie, Bernstein, and JPMorgan downgraded the stock after the guidance cut, the average stock target of  $32, much higher than the current $24.

Read more: Li Auto stock price: here’s why this EV giant is about to surge

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